LIC seeks IRDAI nod to hold on to Tata Sons’ NCDs worth Rs 5k cr

Top executives close to Tata Sons said the group was aware of the buyback that it would have to undertake if LIC was not given approval to hold the debt.

MUMBAI-Life Insurance Corp. of India (LIC) has sought the sector regulator’s permission to allow the state-run insurer to continue holding an estimated Rs 5,000 crore of Tata Sons debt, two people with direct knowledge of the plan said.

LIC purchased the nonconvertible debentures issued by the holding company of the diversified conglomerate over the past few years, before Tata Sons became a private company in September 2017. The insurer receives annual interest on the securities.

Insurance Regulatory and Development Authority of India (IRDAI) rules don’t allow insurers to subscribe to the financial instruments of private companies.

“We should be permitted to hold on to the securities of Tata Sons since we purchased these NCDs over a longer period,” LIC has written to the regulator. ET has seen a copy of the letter.

Investments in private limited companies are not regarded as secured and hence are not approved by the regulator. Insurance companies can invest half their assets under management in traditional financial instruments such as government securities, 15% in infrastructure developers and 35% in corporate bonds, equities and other securities.

Tata Sons was converted into a private company from a deemed public company after a bitter legal battle with former chairman Cyrus Mistry, who was ousted in 2016. IRDAI is now expected to give a timeline to insurance companies to reduce their debt in the holding company.

“We have asked all insurers to come up with their exposure in Tata Sons after it became a private company,” said a senior IRDAI official. A senior LIC official said the corporation had already sent its response to the regulator, without giving any further details. Tata Sons declined to comment.

Top executives close to Tata Sons said the group was aware of the buyback that it would have to undertake if LIC was not given approval to hold the debt.

Executives at Tata Sons’ finance department are working internally to set aside the requisite funds to repay LIC in such an eventuality. “In 2017, we have discussed with Tata shareholders the impact of going private and the financial repercussions,” one of them said. “The LIC disinvestment was part of that.